New Delhi: Two of India’s three listed airlines, InterGlobe Aviation Ltd-led IndiGo and Jet Airways Ltd, accounting for nearly 60% of the domestic market, reduced their debt in the past financial year. SpiceJet Ltd’s debt remained at the same level as in the previous year, according to ratings agency ICRA Ltd.

IndiGo reduced its debt by 18.75% from Rs3,200 crore to Rs2,600 crore and Jet Airways by 15.6% from Rs10,900 crore to Rs9,200 crore. SpiceJet’s debt stayed steady at around Rs1,000 crore, ICRA said.

“What has happened is private players have become profitable and part of the accruals are being used to reduce long-term debt,” said Anand Kulkarni, assistant vice-president and associate head at ICRA.

All three airlines were profitable in the past two fiscal years, while IndiGo was profitable in the preceding one as well. The three reported a combined profit of Rs2,500 crore in 2016-17, a fall of about 30.5% from Rs3,600 crore posted the year before.

ICRA said some of the domestic airlines have major capacity expansion plans and that the overall industry would continue to face short-term liquidity problems.

“The aggregate debt levels in the industry remain high and would require equity infusion to bring the same to reasonable levels,” said ICRA’s assistant vice-president and co-head Kinjal Shah.

The airlines are expected to post lower profits on account of higher fuel costs as well as their inability to raise airfares in response to increases in fuel costs, in the face of competition.

ICRA expects fuel prices to remain at the current levels or rise and estimates a fall in the combined profit of the three listed airlines to Rs2,400 crore in the current financial year.

The increasing number of planes in the market is also a concern, according to ICRA.

“The bargaining power is restricted because of competition. We don’t expect yields to strengthen. Profitability is going to be squeezed,” Kulkarni said. “Even at this level—and capacity increasing so much—to fill your plane, you will have to decrease your fare or demand has to be even more strong.”

The number of plane seats in the market increased by as much as 20% in the past financial year and is expected to expand 17-20% this year on a much bigger base.

Domestic traffic increased 21.8% during 2016-17 and international passenger traffic by 8.4%.

Indian airlines together have nearly 500 planes in their fleet and about as many on order.

Of the aircraft on order, 400 are scheduled for delivery within the next five years, according to aviation consulting firm CAPA. “We are actually sceptical that demand will be there to sustain this kind of fleet induction,” Kulkarni said.

Smaller airlines under the government’s UDAN scheme are also vulnerable.

“People who have money can sustain shocks—like established airlines—but the new ones can’t handle it. This indicates even today the industry is vulnerable and the costs, infrastructure need improvement,” Kulkarni said.